Briefs on Loan Modifications, Foreclosures and the Economy

The delinquency rate on prime mortgages doubled from the first to last quarter of 2008, according a recent federal report. Delinquencies on prime mortgages jumped to 2.4% from 1.1% from the quarter ending March 2008 to the end of the year. While subprime mortgages have always had the highest level of serious delinquencies, it was the first time the rate increase for prime mortgages was higher than for subprimes.  

The report was issued by the Office of the Comptroller of the Currency and Office of Thrift Supervision (OTS) said earlier this month and covered approximately two thirds of outstanding mortgages across the country. According to the report, statistics coming from nine of the largest banks and four thrifts showed that one in ten mortgages were considered to be non-performing. The number of non-performing loans increased by over three percent in the fourth quarter of 2008 alone.

Default rates on modified loans continued at a high pace as well, increasing in each of the last three quarters of 2008. The report suggested that shoddy underwriting, as well as a weakening economy and continuing excessive borrower leverage were to blame. It appears that in many cases borrowers who negotiated their own loans were satisfied with results that did not do enough to rectify the conditions that pushed them into delinquency in the first place. In fact, during the first half of 2008, 59% of all loan modifications resulted in either unchanged or higher monthly payments.  A higher monthly payment, for example, can be the result of modifying a loan from negative amortization to one that pays down the loan balance each month. "This new data shows that, in the current stressful environment, modification strategies that result in unchanged or increased mortgage payments, run the risk of unacceptably high re-default rates," said Comptroller of the Currency John C. Dugan.

In recognition that modifications resulting in higher and unchanged monthly payments aren't working, reduced payment modifications rose from 42% in the first half of 2008 to over 50% by the end of the year. That trend, bolstered by new programs like "Making Home Affordable," initiated by the Obama administration, is expected to continue and was endorsed by OTS Acting Director John E. Bowman who said, "The trend toward lowering payments to make home mortgages more affordable is moving in the right direction.

The "Making Home Affordable" program also pushes lenders to consider principle reductions as another means of reducing monthly payments. Lenders have been very reluctant to reduce a mortgage's principal, but that's a solid approach to getting lower monthly payments, when lower interest rates don't fully do the job.

In summary, the report emphasizes that homeowners are still struggling in growing numbers each month. Loan modifications are a powerful tool when executed in a manner that puts borrowers back on their feet instead of just buying time. Optimizing the end result of a loan modification cannot be over emphasized. Attorney driven loan modifications, as opposed to the do-it-yourself format, are being proven out as a way to optimize those results.

Legal Disclaimer
The information contained herein is provided for general information and advertising purposes only and is not intended to convey a legal option nor legal advice for any particular case or situation. Nothing in this article shall create an attorney-client relationship. Nothing sent to this law office via e-mail shall constitute an attorney-client relationship. Nothing contained in this article shall be construed to be a guarantee or prediction of result. Prior results are provided for general information purposes only and do not guaranty, warranty or predict a similar outcome with respect to any future matter.   Results achieved depend on individual circumstances and not everyone will qualify or be successful in restructuring their mortgage loan.